The Value of the Australian Government Rebate on Private Health Insurance Economic Analysis and Policy Considerations for Australia’s Dual Healthcare System
Avant invited DeltaPearl Partners to analyse the impacts of potential alterations to value of the Australian Government’s Private Health Insurance (PHI) Rebate scheme which incentivises and subsidises PHI coverage for Australian private health insurance policy holders. Avant has a particular interest in this area given it is Australia’s largest doctor-owned organisation with over 95,000 members across all GP and non-GP specialities, providing medical indemnity, PHI and a range of other services to these doctors. It has commissioned this report as a contribution to the public policy debate currently occurring regarding private hospital viability and the role of PHI in contributing to the viability of the private healthcare sector.
Australia’s world-class health system represents a balance between public and private providers. The Government directly funds the public health sector and relies on the PHI rebate scheme to support the private health sector.
At present, Australian public hospitals are at historically high levels of activity, with prolonged waiting lists for specialist consultations and planned surgery. Some procedures now exceed recommended wait times by over 300 per cent. The PHI rebate is one of the Australian Government’s key mechanisms for reducing pressure on the public healthcare system and for promoting individual responsibility for health. The PHI rebate scheme was originally instituted on the grounds that it would help “ensure a viable and sustainable private health sector, while also improving the capacity of the public hospital system to deliver services to the Australian community.”
The Australian Government’s contribution to private health insurance through the rebate effectively reduces the out-of-pocket costs borne by PHI policyholders, thereby making private health insurance more affordable and encouraging participation in the PHI system.
Private health insurance in Australia plays a significant role in the healthcare system, offering coverage for hospital treatments and ancillary services, with the majority of payments from private health insurers being for hospital treatments. Private health insurance often allows patients to choose their own doctors, access private rooms, and avoid long waiting lists for elective surgeries. Currently, around 45.3 per cent of the population hold private health insurance.
The private hospitals perform approximately more than two thirds of all elective procedures in Australia and act as a crucial ‘safety valve’ that alleviates pressure on the public hospital system in the context of rising public hospital waiting lists. Thus, the private hospital system plays a distinct and complementary role to the public hospital system. Public hospitals focus on emergency care, complex and acute cases, and training medical professionals, while private hospitals tend to specialise in elective procedures, maternity, and psychiatric care.
However, as this report will show, the real value of the PHI rebate is declining. Consequently, people are shifting their PHI coverage down to lower tiers of insurance coverage, and the private health sector is experiencing financial strain, as evidenced by recent closures of private hospitals.
Accordingly, this report analyses the economic and fiscal impact across Australia’s health sector of four potential scenario changes to the PHI rebate.